Customized Financial Tools
- One size does not fit all. Employees should be encouraged to customize the retirement plan to fit their goals and needs. Default contribution rates, escalation rates, and investment allocations are not good for all employees.
- Customization is more effective in shaping behavior and fostering retirement savings.
- Lack of liquidity and high-cost debt can offset the benefits of being auto-enrolled into the company pension plan.
- Employees make many financial decisions that will, in turn, influence their participation and contribution to the company pension plan.
- Opting out of auto enrollment, auto escalation, and lifecycle funds should be the result of an informed decision that considers the individual and family circumstances.
- Automatic enrollment, automatic escalation, and lifecycle asset allocation facilitate saving for retirement but do not provide information or tools for making financial decisions, including whether or when to opt-out.
- Empowering employees to take care of their needs and goals will make the pension plan more valuable to them and foster loyalty and employee retention.
- Automatic enrollment, auto-escalation, and allocation in lifecycle funds are not substitutes for information, communication, and financial education.
- Lack of financial literacy exposes employees to poor financial decisions that can, in turn affect participation and contribution in the pension plan, as well as employees’ productivity and anxiety about financial problems.
- Employees need to understand the risk they are exposed to when making asset allocation or accepting the default allocation.
Click here to go to the next topic, Direct Deposit, to see why having a federally insured direct deposit account is critical to your employees' financial fitness.
About the Financial Literacy Center
The FLC's mission is to develop and test innovative programs to improve financial literacy and promote informed financial decisionmaking.
With support from the Social Security Administration, the Center was established in October 2009 by the RAND Corporation, Dartmouth College, and the Wharton School of the University of Pennsylvania in order to develop educational tools and programs that help individuals prepare for their long term financial stability.
About the Program
Presented by the Financial Literacy Center, a joint center established by the RAND Corporation, Dartmouth College, and the Wharton School of the University of Pennsylvania in order to develop educational tools and programs that help individuals prepare for their long-term financial stability.
Success Stories
Take a look at how companies like Mandarin Oriental Hotel Group and Nationwide have had success with automatic enrollment and automatic escalation.
The Dartmouth Project
Increasing employee participation in retirement plans has always been a challenge.
However, researchers at Dartmouth College, through a grant provided by the National Endowment for Financial Education, show that specific low-cost strategies succeed in boosting employee participation rates.
